UNEMPLOYMENT OF LABOUR
It is a situation whereby people are willing and able to work but cannot find jobs or works.
Causes of Unemployment
Unemployment is brought about by the following factors:
1. Technological changes: When technology changes or when a new technology is introduced in the production process it causes unemployment of labour. For example introduction of computers in offices and the use of conveyor belts to lift cargo in factories, has replaced the use of labour force and cause unemployment.
2. Fall in demand: A fall in demand for the product produced by a certain industry will affect production of an industry producing the products. Consequently the industries will collapse and therefore caused unemployment to workers working in that particular industry. Also it may cause unemployment to people who work in an industry, which supplies raw materials, or other inputs to the affected industries. For example the fall in demand for sisal in world market in the late 1970's affected workers in sisal plantation and sisal industries in Tanzania.
3. Climatic changes: Bad weather can affect various economic activities such as mining, agriculture, construction out door trading activities. As a result, people who work in these sectors lose their jobs.
4. Education and training: This causes unemployment if people get kind of education which does not prepare them for self employment. As a result those who finish school and colleges become unemployed if they fail to get jobs. Also, education causes unemployment because educated people tend to choose only certain kinds of jobs. So they are sometimes said to be affected by voluntary unemployment. That is they are unemployed not because there are no jobs but because they do not want to do certain kinds of jobs.
5. Lack of capital goods or investment: Lack of capital goods or investment in an economy results into low production capacity, under utilization of many economic resources and few chances of employment.
6. Rural urban migration: Movement of people from rural areas to urban areas for the purpose of searching for jobs in urban areas causes unemployment in casethese people do not find jobs in urban areas.
7. Lack of supplementary activities in rural areas: People in rural areas become unemployed when they have completed farming activities and when weather is unfavourable for farming activities.
8. Monetary and fiscal reasons: Monetary and fiscal policies can also cause unemployment. For example decline in money supply will cause decline in investment and cause unemployment because of the decrease in government expenditures in public works such as road construction, educations, health,security, research, electricity water etc will cause unemployment.
9. Population pressure: Population leads to unemployment. When the economy has reached a full employment level ie when there are no idle resources then an increase in population leads to unemployment.
Types of Unemployment or Forms of Unemployment
Unemployment can be grouped into the following types:
1. Structural Unemployment: This is a type of unemployment which occurs due to decline of an industry caused by decrease in demand for the product produced by the industry or change in the technology of producing the product that is when competitors emerge with a new technology which the industry cannot cope with.
2. Frictional Unemployment: Frictional unemployment results from friction in the labour market; which creates a delay or time lag during which a worker is unemployed when moving from one job to another. This is caused by the fact that labour is not perfectly mobile it means labour cannot move quickly from one employment to another employment. Either in geographical or in occupational sense. As a result labour can not shift quickly from a declining industry to the expanding industry.
Frictional unemployment may be caused by the following reasons:
(i) Old age which prevent unemployed workers from shifting from one occupation or place to another occupation or place.
(ii) Kind of skills a person has can be an obstacle of moving from one industry to another industry. For example a trained doctor cannot easily fill the post/vacancy of a pilot in case he or she is unemployed.
(iii) Social reasons such as religious, family problems, tradition and customs can also prevent one from moving from one industry to another industry.
3. Casual Unemployment/Erratic: This is a type of unemployment which occurs when workers are laid off in some economic activities which occur in short time basis or temporarily. Example of such activities are tourism, catering, construction, docking and some type of agriculture activities such as horticulture. These activities occur temporarily, workers who work in these activities become unemployed in some periods of time.
4. Seasonal Unemployment: This is a type of casual unemployment which is caused by regular fluctuation in weather conditions. For example, peasants become unemployed after the agricultural seasons have past.
5. Disguised Unemployment (Hidden Unemployment): This occurs when labour is under utilized It means a work given to a certain worker is insufficient not (enough) to make the worker fully employed. For example, if ten workers perform a work which could be done by only two workers, then these workers are said to be disguised unemployed.
6. Technological Unemployment: This can be regarded as a special case of structural unemployment which results from the improvement of the level of technology example when a labour serving technology is introduced in a factory then many people lose their jobs.
7. Mass Unemployment/Cyclical Unemployment: This occurs when there is a general decline in the whole economy. It means during period of economic depression. During this period almost all the workers lose their jobs.
8. Classical/Real Wage Unemployment: This occurs when there is excessive increase in real wages. As a result demand for labour decrease while supply of labour increase. Hence workers become unemployed. This happens when the level of wages is greater than what the market forces can offer. As a result demand for labour declines and unemployment occur.
9. Residual unemployment: This is catching all categories covering any other possible cause of unemployment. This may include the unemployable people e.g. people with physical disabilities and the work - shy.
Voluntary and Involuntary Unemployment
Types of unemployment can be grouped into either voluntary or involuntary unemployment. Voluntary unemployment means that a person is unemployed because she/he is not ready to do a certain work at the existing wage rate. For example, a trained doctor refusing to be a garbage collector.
Voluntary Unemployment
Causes of Voluntary Unemployment
Voluntary unemployment is caused by the following factors
- Low wage rate.
- The desire to live on personal income or family income.
- Poor working conditions.
- The desire for leisure.
- One's mere choice.
- The proposed job may be unpleasant.
- Desire to live on accumulated savings.
- Peoples mere laziness.
Involuntary Unemployment
This occurs when a certain labour is able and willing to work but cannot find a job.
Involuntary unemployment is caused by several factors:-
such as:
- Residual unemployment.
- Casual works.
- Technological changes.
- Climatic changes.
- Lack of skills.
Keynesian Unemployment.
This type of unemployment was named after the Lord Keynes as a type of unemployment which is caused by lack of sufficient demand. i.e. when demand falls short of supply. Labour becomes unemployed because the demand for the products produced by labour has fallen, since the demand for labour is a derived demand. When the demand for the products produced by labour falls it causes a fall in the demand for labour.
Solutions to Keynesians Unemployment.
According to Keynes, unemployment problem can be solved by applying the
following measures.
Use of Expansionary Fiscal Policy
In this policy, the government can increase government expenditures in areas such as
construction of roads, education, medical care, defence, subsidies to producers such as farmers. By doing so the government is able to create employment opportunities and
incomes to the people. The government can also reduce tax in order to encourage
investments and therefore create employment opportunities.
1. Use of Expansionary Monetary Policy
In this policy, the Central Bank can stimulate investment and thus create
employment by increasing money supply through reduction of the rate of interests.
2. Encourage Export
The government can apply various measures such as reduction of export tariffs and
provision of incentives to exporters in order to boost the sector and thus create
more employment opportunities in the sector.
3. Increase in Investment Environment
The government can stimulate more investments in a country by taking some
measures which create conducive environment for the growth of investments. Such measures are:
Establishment of good infrastructure
Security
Good governance
Political stability
Sound economic policies
Investment protection laws
Applicability/Relevance of Keynesian Unemployment Theory
Keynesian unemployment theory has the following uses:
1. In less developed countries unemployment is from the supply side not from the demand side.
2. Increase in government expenditure may cause inflation due to lack of supply of
commodities.
3. People in fewer developing countries keep their wealth in form of properties such
as land and cows. These do not expand employment.
4. People in less developed countries have a tendency to hoard money due to
ignorance and poor investment climate therefore increasing government
expenditures may not lead to increase in demand.
5. This type of unemployment affects more industrialised countries while most of
less developed countries are agro based.
Solutions of Unemployment
The following are the solutions for the unemployment problem:
1. Application of Labour Intensive Technique of Production
Labour intensive technique can be applied to enable employment of large number of
people.
2. Establishment of Irrigation Schemes
In areas where rainfall is not adequate, irrigation scheme can be applied in order to
solve the problem of seasonal unemployment.
3. Diversification of the Economy
The country can diversify the economy by establishing many economic sectors like
agriculture, industry, mining, trade, tourism etc in order to employ many people.
4. Expansionary Monetary Policy
The government can apply expansionary monetary policy to solve the problem of
unemployment. This can be done by reducing the rate of interest because when the rate of interest is low, investors are encouraged to borrow money from banks for investment. An increase in investments creates more employment opportunities.
5. Expansionary Fiscal Policy
The government can use expansionary fiscal policy to reduce the level of Unemployment. There are two fiscal policy measures that can be used to solve the problem of unemployment.
(i) Increase in government expenditure: The government can increase its expenditure in public works such as health, education, roads, water, road and railways construction. Such spending create employment and income to the people and also stimulate other economic activities such as agriculture and industry.
(ii) Reduction of Tax: The government can reduce the amount of tax to encourage
both production and consumption which lead to increase in employment
Establishment of Supplementary Activities in Rural Areas In order to solve seasonal unemployment in rural areas the government can assist establishment of other economic activities such as small scale industry (hand crafts), mining, tourism, trade etc, such activities will help to occupy peasants during the dry season or when there is a severe drought.
7. Provision of Education which Gives Job Skills to Learners In order to assist school leavers to employ themselves after completion of their education the ministry responsible for education should prepare kind of curriculum which prepare learners to employ themselves after completion of their education.
8. Export Promotion Measures
The growth of export sector can help to increase employment opportunities.
Exports can be promoted by reducing export tariffs, providing export incentives,
and eliminating transportation bottlenecks.
Costs and Benefits of Unemployment
Unemployment has both costs and benefits:
A: Cost of Unemployment (Negative Impact of Unemployment)
1. Decline in the size of national income: Unemployment causes a decline in the size
of the national income. National income is reduced by the proportion that could be
produced by the unemployed people if they were employed.
2. Increase in the dependence ratio: A large number of unemployed people increase
the number of dependant people.
3. Decline in saving capacity of income earners: Savings by income earners decline
due to large burden of helping unemployed people who are close relative.
4. Emergence of classes: Unemployment creates classes of people between those who
are employed and those who are unemployed.
5. Emergence of social evils: Unemployment makes unemployed people liable for
engage in social evils such as robbery, prostitution and theft in order to survive.
6. Increase in government burden: In countries where unemployed people are paid unemployment benefits the government bears the burden of paying them. This burden may be transferred to tax payers; an increase in tax will increase prices of goods and discourage consumption
B. Benefits of Unemployment (Positive Benefits of Unemployment)
Unemployment has some positive benefits; these benefits normally go to firms.
1. Increase in the supply of labour: A large number of unemployed people may
increase the supply of labour and therefore reduce the level of wages and the cost of
production.
2. Increase in work discipline: Unemployment may increase the discipline of work to those who are employed; they become disciplined for fear of losing jobs due to existence of a large number of unemployed people who are searching for the same job.
3. Firms can pick the best employees: Large number of unemployed people enables
firms to pick best worker from a large basket of unemployed people.
4. A remedy for demand pull inflation: Unemployment reduces disposable incomes of income earners and their purchasing power; a decline in the purchasing power may be a remedy for demand pull inflation.
Development of informal sector: Unemployment in formal employment encourages
the development of informal sector and a self employment which can largely
contribute to the growth of the national income.
Full Employment
By full employment it means the situation whereby all people who are willing and able
to work are employed. However when there is full employment it does not mean that
every single adult in a country has a work to do this is due to the following reasons
There are always individuals who are physically incapable of doing normal works.
There are full time home workers (house keepers)
There are those lucky people with private incomes which is sufficient to enable
them to live without any work.
There are some adults who are in full time education, therefore they can not go to
the labour market to look for employment
There are those individuals who are affected by frictional unemployment, due to
immobility of labour. i.e. inability of labour to move from a declining industry to an
expanding industry due to factors such as age, illness, social ties and differences in
skills.
Due to the above reasons the concept of full employment is theoretical.
How to Achieve Full Employment
Unemployment can be achieved by applying the following measures:
1. Increase in government expenditure to stimulate demand and investments hence
create more jobs.
2. Expansionary monetary policy through reduction of the rate of interest to encourage
investments and thus create more jobs.
3. Appropriate manpower allocation to ensure that all the available labour force is
absorbed in employment opportunities available.
4. Delocalization of industries to ensure employment opportunities in all areas of the
country.
5. Provide skills to workers so that they can improve their productivity.
6. There must be organised mobility of labour, since in a progressive economy there will always be some industries which are expanding while others are declining. As a
result some workers will be faced with frictional unemployment due to lack of
mobility of labour. Therefore the government or trade unions will have to do some organisation to make easy mobility of labour from declining industries to expanding industries.
Problems of Full Employment
Experience has shown that the maintenance of full employment produces problems of
its own:
1. The danger of Inflation is increased
There are two reasons for this:
(a)Over-Investment is Likely to Occur: It is impossible to calculate exactly how much
public investment is required to yield full employment. In its anxiety to ensure full
employment, a government may be inclined to undertake too much investment, and so a condition of inflation will be induced, in which the demand for labour is
greater than the supply.
(b)The Wages Policy of the Trade Unions: Full employment puts the trade unions in a
strong bargaining position. During the era of depression, trade unions had to
submit to some reduction in money wages, and had to wait for times of boom to
secure wage increments for their members. If full employment is permanently
maintained the situation becomes quite different conditions are favourable to the
trade unions all the time. If over-full employment exists, the problem will be
intensified, for shortages of labour in many occupations will lead to proposals being
put forward for raising wages in those occupations in order to attract more labour to them. Since in these conditions, however, labour can be drawn only from other
occupations, wage increment will be demanded elsewhere as a means of retaining labour! Increased wages in one occupation lead to increased wages in others. In these conditions, costs can generally be passed on to consumers, and so rising wages are followed by rising prices, which in turn give rise to further demands for wage increases. In this way the inflationary spiral is kept in motion, and is difficult to arrest.
2. Mal Distribution of Resources May Occur
Another serious danger is that economic resources will not easily move from one
occupation to another. Changing conditions may reduce the demand for factors in one
employment and increase the demand for factors in another. Instead of a transfer of
factors taking place, there will be demand by the declining industry to be subsidised,
especially if it happens to be a nationalised industry. Such as the railways-or protected
by a tariff if foreign competition is severe. If economic forces are not allowed to
determine the distribution of factors among different occupations, the assortment of
goods produced will differ from that which the community as a whole prefers.
3. The Quality of Labour May Fall
There are three reasons for this:
(a) The high demand for labour makes it possible for the least efficient workers to
secure employment.
(b) The removal of the fear of losing ones job may, often subconsciously, cause many
workers to put forward less effort, and
(c) Labour turnover tends to increase as many workers find it easy to change jobs. In
spite of all this, however, most countries in recent years found productivity rising
as a result of the employment of more efficient capital.
Underemployment
Under employment exists when a person's capacity to work is under utilized; it is a
situation when the marginal productivity of labour is less than what it is supposed to be
or tends to be zero. it is a situation when somebody does less work than he should
either monthly, weekly or daily.
Over Full Employment
This is a situation which occurs when the available job vacancies are more than the
available number of unemployed. Over full employment is therefore a characteristic of
an inflationary situation where the demand for labour tends to run ahead of the supply
of labour.
Unemployment and Inflation
Inflation and unemployment are related as follows:
- An increase in wages causes an increase in the supply of labour and therefore
reduces unemployment but it leads to increase in the cost of production and thus a
reason for cost push inflation.
Unemployment Rate
This is a ratio between the number of people who are employed and the number of
people who are unemployed.
